Investor Views: Investment Trusts Helped Me Retire Early

Retired investor Mick Beaman says closed-end funds have helped him retire early. He shares his investment strategy with Morningstar.co.uk

Emma Simon 30 November, 2018 | 8:21AM

Investment trusts helped one investor retire early model stock pic

Mick Beaman has been buying investment trusts since PEPs, or Personal Equity Plans, were first launched, back in 1987.

Beaman, who is now retired, wanted to build up his savings. He says: “I was not in the kind of career that lets you build a substantial and reliable pension with one organisation.”

This strategy paid off, as he stopped working five years ago. And, as he has just celebrated his 65th birthday he now also gets the State Pension, which, alongside two small company pensions, subsidises these savings.

London-based Beaman invests via Hargreaves Lansdown. He holds an ISA, SIPP and a general investment account with the online platform.

Over the years Beaman has widened his portfolio of investment trusts. He says: “In the 1990s I probably held just three or four trusts. Now I am invested in 13 different trusts, and this doesn’t include some my real estate holdings.”

He says he has reduced his investment in generalist trusts as their discounts have tightened and has instead looked for more niche funds to benefit from their higher discounts.

When choosing to invest in a trust, Beaman says he takes note of the trust’s approach and objectives to ensure it fits his needs.

“I like to invest if the trust is on a discount, and low fees are important too,” he says. “Past performance obviously isn’t a guide to future returns, so I don’t worry about it too much, unless it suggests with that the trust won’t meet my investment objectives or that it is a closet tracker.”

Long Term Successful Investments

When it comes to individual trusts, Beaman says that Bankers Investment Trust (BNKR) and Law Debenture Corporation (LWDB) been particularly solid holdings in the past.

“These two trusts served me well between 2000 and 2010, and I have more recently bought back into Law Debenture. They are both very competitive in terms of management charges,” he says.

Both are global equity trusts, and each has a coveted Silver Rating from Morningstar fund analysts.

Bankers is a large cap fund, and has a four-star rating, reflecting its strong outperformance against its benchmark and peers.

Morningstar analyst David Holder says this trust Bankers Trust represents “A very solid choice for global large-cap exposure with a helpful quarterly yield.”

Manager Alex Crooke has been at the helm since 2003. Crooke determines the fund's asset allocation in concert with the board. Then works with fellow managers across Janus Henderson to build concentrated “best ideas” portfolios for each region.

Holder adds: “We like the simple and transparent nature of the fee structure, not least because it results in a very competitive ongoing charge of 0.44%. Investors can be assured they are receiving high-quality and active management here for a very competitive fee.”

Over the past 10 years this trust has delivered annualised returns of 13.9%.

Law Debenture is another global trust but takes a more flexible multi-cap approach. It also has more of a bias towards the UK than the Bankers Trust.

Again returns have been strong over the longer term, with annualised returns of 14.61% over the past 10 years.

Holder says: “Law Debenture provides investors with a unique proposition incorporating a successful independent fiduciary services business and an actively managed portfolio of global equities, albeit with a consistent UK bias.”

The investment portfolio is managed by the highly-experienced James Henderson. Holder says he has an “enviable record” in managing predominantly UK equity portfolios, particularly with a bias lower down the market-cap scale.

He adds: “Henderson likes to foray into under-researched smaller companies, although this isn’t to the exclusion of large caps.”

Adding Niche Trust for Growth Opportunities

Beaman says he has recently invested in Scottish Oriental (SST) and Caledonia (CLDN) trusts.

Scottish Oriental invests in smaller and mid-cap holdings across Asia, although it excludes Japan. It has a four-star rating from Morningstar, reflecting its outperformance in recent years.

As with any emerging market fund, or trust, returns can be more volatile. This is seen in is performance figures. Over 10 years it has delivered annualised returns of over 20%, but over a five year period, the annualised returns are just 3.93%.

It currently stands at a discount of 14.81%.

Top Performing Trust at a Discount

Caledonia is another global trust, managed by William Wyatt. This trust has delivered strong and stable returns over three, five and 10 years – in each time frame the annualised returns to investors have been between 9 and 10% according to Morningstar data.

The trust has a five-star performance rating, despite this, the trust is currently trading on a 20% discount, and has been on an average 18% discount over the past 12 months.

Beaman says he likes buying into trusts that have a good track record of delivering growth and income, at a discount. If this narrows this can help boost overall returns he says.

Before he retired Beaman invested on a regular basis. “This was often driven by the end of the tax years and timing for ISA and pension contributions. Now I am not working I save less and it is more of an ad hoc process.”

Most of his time is spent managing his existing portfolio and buying and selling holdings as appropriate. Beaman lives with his wife and also manages her savings too, which includes some rental properties.

What have been your best fund holdings? Are you looking to make changes to your portfolio? Tell us about your investment successes on Twitter or email editorial@morningstar.co.uk

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Bankers Ord794.89 GBX-0.26
Caledonia Investments Ord2,769.60 GBX-0.01
Law Debenture Corporation Ord541.92 GBX-0.75
Scottish Oriental Smaller Cos Ord928.00 GBX-0.22

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk